Making the Most Out of Bad Credit Loans

Money is a problem for many these days, and online bad credit loans are becoming more popular as a way to pay for unexpected and costly financial situations. No credit check bad credit loans such as payday loans are mostly used by people who cannot afford to pay for unexpected bills or utility repairs, and with no credit check bad credit loans that much needed cash can be transferred into the bank in next to no time.

How Do Bad Credit Loans Work?

Unlike regular loans, bad credit loans give you a fixed cash sum from a few hundred dollars up to a few thousand, which you pay back with your next paycheck, and attach a relatively high rate of interest which you pay on top of what you borrowed. The availability of bad credit loans is very high. Bad credit loan lenders perform no thorough credit check so almost anyone can apply.

The Best Bad Credit Loans

It always helps to be careful when choosing between online bad credit loans lenders, because not all of them are reliable or consumer-friendly. The best online bad credit loan lenders offer affordable interest rates and around the clock customer service. Online bad credit loans are designed to help you, and you can benefit as long as you are sensible.

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Survey shows that more and more families are shying away from private colleges. Apparently, the current cost of tuition is too high for the average American household to afford without financial aid. This is despite the fact that salary has gone up; thereby boosting consumer spending and helping the economy.

Students’ Choice vs. Tuition Cost

According to a study done in North Carolina, about 40% of the entire college population would have been qualified to attend selective colleges. However, none of them did and instead settled on a college that would meet their financial requirements.

Top schools in America continue to have an application process that is blind to the needs of students. This means that despite your need and qualifications to get education from a top university, if you don’t have the mean you will not be able to. Hence, the 40% of supposedly qualified students are forced to enroll in places with smaller endowments but are less costly.

While college financial aid and merit-based scholarships still exist, they are normally offered to students with the lowest incomes. This what worries the average working-class families.

The study concludes that these days, money is the number one factor for deciding which college to attend. While it is possible to get student loans just to attend your college of choice, experts say that it is too risky. In many cases, students had to spend the next ten or twenty years working to pay for the student loans incurred during college.

Universities Admit Middle-Class Getting the Least Attention

An admission director at Pomona College openly admits that the middle-class are getting the least attention. These are the families whose annual income exceeds the maximum accepted to qualify for financial help. However, there are the same families who cannot afford the high cost of tuition in private universities.

In the current state of the economy, students have one goal the moment they enter college and that is to graduate and get a job. That’s quite a long time before they get to earn. But with the high cost of tuition and the current treatment middle-class families are getting, nearly half of American students drop out even before getting their degrees. This is information based on the study from Harvard.

In order to better the chances of enrollment, there is a lot of work to be done. Student loans are essential tools but they should come with lower interest rates. Universities need to create better programs for middle-class families. After all, the future of the US economy depends on its graduates.

While many believe that the economic crisis has made lending a whole lot tighter these days, there is no shortage of funds among lenders of bad credit loans, making this particular type of loans a lot more accessible for credit consumers. This is according to a report from the National People’s Action and the Public Accountability Initiative.

The report, dubbed “The Predators Creditors,” reveals that the bad credit loan industry is backed by the biggest banks and financial institutions in the US, and is in fact the reason why the industry of bad credit loans, more commonly known as payday loans, has experienced an unprecedented growth since its launch. The continuous financing of these banks has also fuelled the growth of the industry.

Wells Fargo & Co, the Bank of America Corp, and JP Morgan Chase & Co. are three of the largest banks in the US reported to have lent support to the industry of bad credit loans. According to a report by Nathaniel Popper of the LA Times, “Major banks led by Wells Fargo & Co, US Bancorp and JP Morgan Chase & Co. provide more than $2.5 billion in credit to large payday lenders.” Along with the financing that these banks provide to the industry, it is also reported that they have started to offer loans that resemble bad credit loans, offering high-interest loans on their own. In particular, the new, short-term, checking advance loans offered by banks can have interest rates of as high as 120%.

Consumer groups have continued to attack the industry, saying that taking out payday loans only lead credit consumers to a financial trap that can be difficult to get out of. The coauthor of the said report and Public Accountability Initiative director, Kevin Connor, said “Not having financing would shut the big players down.”

Bad Credit Loan Industry Seen to Grow

But while continuously attacked by various groups, payday loans remain a great choice for credit consumers. Steven Schlein, Community Financial Services Association spokesman, slams reports about the misleading relationship between banks and payday lenders, saying that “[p]ayday loans companies are in fact good creditors because their customers are good creditors. He adds, “Payday loans are a valuable service to millions of American consumers that have short-term financial needs.”

With billions of dollars of financing offered by these giant banks, there is no wonder why the industry is booming, and is thus anticipated to expand in the coming years. And in response to all the negative, and probably misleading, write-ups and reports about the industry, government agencies have started to initiate rules and regulations, such as the provision of a national cap on payday loan interest rates, in order to protect consumers of bad credit loans.

Reports from various consumer groups reveal that some of the biggest banks in the US, including Wells Fargo, have started to offer short-term, high interest rate loans that are much like bad credit loans, or payday loans. Although not labeled as such, and is instead known under the term “direct deposit advance,” consumer groups believe that this kind of loan offered by Wells Fargo works like the dreaded payday loans. Payday loans are popular for their high interest rates and are perceived to lead credit consumers into a financial trap.

In a letter addressed to the Office of the Comptroller of the Currency, which investigates Wells Fargo’s direct deposit advance, the Center for Responsible Lending and National Consumer Law Center says, “Wells Fargo makes payday loans. The bank calls its product a ‘direct deposit advance service,’ but it is structured just like a loan from a payday loan storefront, carrying a high-cost (averaging 270% in annualized interest) combined with a short-term balloon repayment (averaging just 10 days).”

Wells Fargo’s direct deposit advance is reported to offer consumers with checking accounts of as much as $500 in a high-interest loan. The bank, however, claimed that it only charges $2 for every $20 borrowed, unlike payday loans which charge more expensive rates. Tom Barlow of Daily Finance emphasizes that this loan needs to be paid off within a month, a term or condition that is similar to payday loan.

The industry of payday loans has been scrutinized and bombarded with feedback from various consumer groups because of the high interest rates that it charges to borrowers. And with major US banks reported not just to offer loans that resemble payday loans, but also to finance the industry, consumer groups are also calling for authorities to start investigating these institutions and to take action in order to protect the consumers.

Kathleen Day of the Center for Responsible Lending says, “Unaffordable short-term loans cause harm rather than meet the needs. These loans are not ‘alternatives’ to payday loans. They are payday loans. They are structured exactly the same, and like other payday loans, the data show these loans trap borrowers in a long-term cycle of high-cost, unaffordable debt.”

Despite calls to stop offering these loans, however, Wells Fargo doesn’t seem like it has plans of doing so. As a statement from the bank’s consumerist goes, “Wells Fargo has been offering [direct deposit advance] since 1994…It is a line of credit only available to customers with established Wells Fargo consumer checking relationships and recurring qualified direct deposits…We believe that the Direct Deposit Service is a less expensive and more flexible alternative to a payday loan for our customers.”

Meanwhile, a spokesman from Community Financial Services Association defends the payday loan industry, saying that payday loans are a valuable service to a lot of consumers in America who are in immediate need of cash.

Consumer finance firms in the US have been operating under a 30-year-old outdated system. Now that the government wants to update the laws covering the finance industry by passing SB 489, it appears that consumer advocacy groups are ranting and raving over it. The bill, although presented to reduce the current maximum interest rate on loans, will actually trigger higher interest rates for the majority of borrowers. .

The proposed bill actually means higher interest rate

If the bill is signed into law, this means that borrowers will end up paying from $50 million to $70 million more than they are supposed to pay in a year.

The bill will cut down the current maximum interest rate from 36 percent to 30. But the current maximum interest rate is only applicable to loans of up to $1,000, which means that borrowers of bigger amounts of loans will not enjoy lower rates.

However, the bill would also allow finance companies to charge consumers with a 30 percent rate interest rate to loans that are up to $5,000. This means higher interest rate kicks on bigger dollar loans. Lending companies may also be allowed to provide loans from $10,000 to $15,000, and with higher interest rates.

For instance, a borrower applies for loans amounting to $7,500. In the old system, they have to pay 30 percent on the first $1,000. The remaining amount of $6,500 will be charged with 18 percent additional interest rate. But with the new bill, consumers have to pay the first $5,000 with 30 percent and 24 percent for the remaining amount of loan.

The future of the new consumer loans bill

According to industry experts, SB 489 will most likely be signed into a law considering the strong legislative support it has. There are about 23 primary and co-sponsors, wherein four are Democrats, and 19 are Republicans. Analysts reiterated that raising the interest rate on consumer finance loans now is not good timing. They advised legislators to take into account the current state of the economy, which is still on the recovery process.

The consumer and housing project director of the N.C. Justice Center, Al Ripley, explained that finance companies do not worry about giving up the 36 percent interest rate on smaller loans. This is because they make much more with the bigger ones.

Ripley also revealed that many consumers can’t afford to pay their loans. As a result, they resort to bad credit loans and become stuck in the cycle of borrowing due to poor credit management.

Comerica and U.S. Bancorp are among the largest banks in the nation. They are as well two of the most financially-established regional banks. However, the recent downward trend in their revenues from mortgage and business lending led them to turn to cost cutting. According to both banks’ executives, they would continue this strategic move to drive more revenues, considering the sloppy recovery of the economy and the low interest rates.

Cost cutting to improve revenue is not new

Even before Comerica and U.S. Bancorp decided to take this drastic measure, other banks have already gone ahead. This includes the Bank of America and Citigroup Inc. Among the earlier strategies adopted were job cutting and branch closures. Some of the banks also reduced their budgets for marketing and other investments. Experts say that expense cuts are the best way out for banks to save their businesses.

Banks see expense cuts as crucial

U.S. Bancorp enjoyed good earnings a year earlier with a 6.7 percent rise. Unfortunately, its recent stock declined by 2.3 percent and trading reduced to $32.56. Hence, the bank’s investors were very much concerned that the financial institution may find it difficult to recover its revenues.

Similarly, Comerica’s revenues dropped by 4.9 percent last year, about 1.9 percent of which was recorded in the fourth quarter alone. The bank managed to reduce its expenses by 7.1 percent a year earlier.

Comerica’s Chief Financial Officer, Karen Parkhill, said that the bank would continue its expense management strategies and expect the cost of operations to drop further this year.

The U.S. Bancorp, however, may be taking a different step to grow its revenues. Analysts say that unlike the other banks, Bancorp won’t be cutting on jobs and closing branches. Instead, it will be cutting on some of its investments and will be opening a few finance offices to offer commercial lending. Other forms of expansions will also be placed on hold until the demand for loans is back on track.

Banks cutting on jobs

Comerica has already cut about 8,932 jobs since last year. Although the bank has not yet disclosed the number of pending job cuts, its executives revealed that they were trying to find efficiencies.

Citigroup already had more than 11,000 job cuts that allowed them to save as much as $900 million. On the other hand, the Bank of America is currently at the second phase of its expense management program, which was initially announced to involve 30,000 job cuts.

Nevertheless, some banks are still hesitant to do the same because they are more concerned on their customer service rather than their expenses and revenues. This is especially true given the tough competition among banks these days. Customer retention definitely is more important to remain in business.

Citigroup breaks the record as their net income increased by 30% during the initial quarter of the year. However, the bank is facing a challenge in this slow economy as their American borrowers are skittish about getting new loans. The bank has been working hard to cut their labor and costs and this resulted in a reported gain of $3.8 billion in the first quarter.

Unfortunately, the group is still gasping as their consumer units remain stationary. Up to present, borrowers are still hesitant to take out new loans in this sluggish economy despite the significant decrease in interest rate.

John Gerspach, the bank’s chief financial officer, can see a significant amount of deleveraging in this period believing that there are no real consumers pushing the economy.

Consumers on debts and loans

A Citigroup credit card user sees this ‘deleveraging’ as a sign of relief. According to the long-time bank consumer, she reserved her entire month’s paycheck to pay off credit card debts. Although the payment terms are quite reasonable and manageable, the feeling of being stuck in loans can limit her fluidity. Banking analysts say that consumers across the country are working hard to wipe out their bills and mortgages and be debt-free as much as possible.

The future of the finance industry

Citigroup’s recently released earning report show how they may have to struggle in order to compensate for their losses, considering the new financial policies and the slow economy. Deteriorating loan demands further aggravate the issue.

Another reason why consumers are hesitant about making new loans is the wide uncertainties about the mortgages and housing industry. Housing costs keep on mounting recently. Consumers may not make any improvement on the banking units until they are stable for another stretch in credit.

On a brighter side, Citigroup continues to hope for further revenues from its international operations despite the fact that some areas also yield jaded returns. The revenues from the consumer units in Asia went down to up to $2 billion during the first quarter, a decrease of one percent from last year’s first period. Despite these struggles, the company remains to show positivity on other areas of its businesses.

Senate Bill 515 is set to save borrowers from being stuck in payday loans. However, the payday loans industry sees the bill as destructive rather than helpful.

Another senate bill is being proposed before the California legislature that would limit payday loans applications to six in a year per borrower. According to the proponents of Bill 515,its main purpose is to control, if not totally eradicate, the debt cycle that hits the state’s financially-struggling residents.

Payday loans bill restrictions

Bill515 will be submitted to the Senate Banking and Financial Services Committee. If approved, it would prohibit short-term finance lenders from providing payday loans to any borrower more than six times every year. In addition, lenders can no longer demand for a payback in 15 days. The bill proposes that the terms for payday loans be extended to 30 days.

State Senator Hanna-Beth Jackson is one of the authors of the bill. She believes that low-income residents are the most vulnerable to bad credit loans as of finance options. That being said, the need to save them from this possible debt trap becomes more crucial.

What payday loans lenders have to say

On the other hand, proponents of the payday loans industry do not see what supporters of Bill 515 see. Lenders are not supporting the bill as they believe it would only harm the already-regulated industry that has saved a lot of financially-struggling state residents.

California Financial Service Providers’ spokesman Greg Larsen said that the best people to decide are the consumers themselves. This is mainly because the bill may lead to underground lending and/or legitimate lenders raising the interest rates and costs.Worse, it may even cause the crash of the industry.

Additionally, the bill would allow borrowers to opt for repayment plans if they fail to pay their loans after six loans. But lenders also argue that the bill will further push the residents to online lenders where unlicensed finance agencies lurk.

What supporters of the payday loans bill have to say

Despite the objections from the payday loans sector, there are still strong supporters backing the bill. These would include the National Council of La Raza, California Reinvestment Coalition and The Center for Responsible Lending.

These advocates reiterate that borrowers generally can’t pay off their loans on time. With this, they are forced to take out new loans, even with bad credit, to cover up their overdue payments. As a result, they become subject to more fees and higher interest rates.

Along with the Federal Reserve is the US Comptroller Currency in revealing the settlement plan from the nation’s biggest banks including Citigroup, Wells Fargo, JPMorgan Chase and the Bank of America. The said banks, along with nine others, reached an agreement with both government agencies to pay borrowers with a total of $9.3 billion in cash and a reduction in balances for existing home loans and mortgages.

Banks’ payment schedules

Borrowers who qualified for the foreclosure settlements and who have obtained mortgages from 11 banks will be receiving payments before April ends. The federal agencies say that 90 percent of the borrowers are included in this payment schedule.

The 4.2 million borrowers, who lost their homes or at the brink of foreclosure, will be receiving cash in as little as $300 to as much as $125,000. Major banks have allotted $3.6 billion to be distributed to qualified borrowers. The last payment releases will be completed in the middle of July.

Further, settlements worth $125,000 will most likely be given to the 1,082 military personnel who had their homes foreclosed. Foreclosing homes of military personnel who are in active service is illegal.

Additionally, there were 53 borrowers whose homes were foreclosed although their mortgages were not in default.

Borrowers denied of loans modification also qualify

The Federal Reserve and the Comptroller Currency also said that homeowners who were found to have been unreasonably denied of loans modification qualify as well. However, they may only receive small amounts as settlements. The biggest groups to receive the biggest payments are those who had their homes unfairly seized. The amounts reported are only applicable to loans and mortgages that come from the 11 banks who confirmed their participation. Morgan Stanley and Morgan Sachs are yet to announce their guidelines.

Consumer banks also involved

Other banks to pay for the foreclosure settlements include Aurora, Suntrust, US Bank, Sovereign, PNC Financial Services, MetLife Bank and HSBC. The coverage of their settlement includes borrowers who were served foreclosure papers from 2009 to 2010.

In 2011, The Federal Reserve and the Comptroller Currency initiated an independent review of loans that ended up being questioned by banks and consumer advocates. Critics say that the reviews were costly, time-consuming and failed to reach affected consumers.

RBC Capital Markets analyst, Gerard Cassidy, says that banks with big capital markets are most likely to experience troubles in their financial performance every fourth quarter. However, if it were to be based on the year-on-year performance, the entire industry will enjoy impressive earnings that will be brought about by good credit quality. Moreover, Cassidy reiterated that the current trend in the industry will have the most advantage on banks that are still recovering.

Earnings by major banks

Financial analysts are closely watching major banks and home loan providers in order to determine how the present state of residential mortgages will affect the industry. This is following the new projection that the entire industry will experience a downfall after the excellent performance in 2012. The decline is expected to be at six percent from the last quarter as reported by the Mortgage Bankers Association.

A major provider of residential mortgages, JPMorgan, is one of the banks that must be closely monitored. A prominent firm conducted a research on major banks and found out the JPMorgan has the highest revenues earned from trading and investment banking, totaling about 30 percent of its overall income.

Revenue-wise, it is followed by the Citigroup, Bank of America and Wells Fargo with 20 percent, 25 percent and five percent, respectively.

Meanwhile, Thomson Reuters released a report that banks have collected significantly lower fees on advisory services for investment banking in this year’s first quarter than the fourth quarter of last year. Overall fees were down by 11 percent from the fourth quarter of last year, although a six percent increase year per year has been recorded. In the first quarter of 2013, fees collected summed up to $19.8 billion.

JPMorgan gets better projection than other banks

Despite the sloppy and unpredictable capital market trends, analysts are still hopeful on JPMorgan. They noted that the core products would remain impressive with growth in loans and solid deposits along with the lowest net interest margin risk among the other competitor banks.

Furthermore, analysts predict that the bank will have $1.43 core earnings per share for the first quarter of 2013. This is relatively higher than the $1.38 Street consensus.

They also foresee stocks at JPMorgan being a lot cheaper than in others. Shares could be up by 17 percent for JPMorgan. Nevertheless, Bank of America may also enjoy an upside but only at the same level as Citigroup and Wells Fargo.

Banks to invest in

Although experts see plenty of upsides for major banks, they recommend investors to look at other options. They cited the recent downgrade of Goldman Sachs by the Bank of America to neutral. Similarly, Morgan Stanley was cut to the same level by the Credit Suisse. Both firms are seen to have limited upside, although their stocks are up in the past couple of months.

Nevertheless, banks like the Regions Financial, Sun Trust, Citigroup and Bank of America are set to improve their earnings in the next two years. Experts say that normalized earnings will be achieved a few years henceforth. They reiterated that stocks of safer banks, such as US Bancorp, will face difficulty. Unfortunately, it may be the reason that its shares won’t be doing well.